Offshore operators seek clarity on regulations

Even though complex engineering and scientific breakthroughs will dominate at Reliant Park this week, regulatory issues being decided more than 1,000 miles away in the nation’s capital also are sure to be part of the conversation at the Offshore Technology Conference.

The pace of regulatory change has slowed since the days just after the Deepwater Horizon disaster in 2010, but oil companies and offshore contractors are still dealing with repercussions, including new mandates that have taken effect and proposals still on the horizon.

At the same time, industry is looking to officials in Washington to clarify the standards that will govern a new era of Arctic drilling and approve a new generation of seismic research that could help pinpoint oil lurking along the East Coast.

The biggest buzz surrounds the Interior Department’s plans to impose new standards for blowout preventers, the systems of shear rams and valves designed to cut and seal drill pipe as a last-ditch defense against loss of well control.

“It’s very high on people’s radar,” said Holly Hopkins, a senior policy adviser for the American Petroleum Institute. “If you’re operating in the Gulf of Mexico, you’re talking about the (blowout preventer) rule — when is it coming out, what’s going to be in it, when can we see it.”

Almost certainly, regulators will require more robust maintenance of blowout preventers, more intensive training for the people operating them and better sensors to track their performance deep underwater.

The Interior Department’s Bureau of Safety and Environmental Enforcement also appears likely to lay out specific performance standards for the devices, such as a mandate that they be capable of cutting through debris as well as thick tool joints where pieces of drill pipe connect.

Another possible requirement: A second set of shear rams to increase the odds of successfully cutting through pipe, a redundancy already being used at some offshore drilling sites today.

Although regulators have foreshadowed the broad contours of the rule, drilling contractors and oil companies operating offshore are anxious about the specifics, Hopkins acknowledged.

A major concern, said Randall Luthi, head of the National Ocean Industries Association, is ensuring there is enough time for blowout preventers to be redesigned if necessary and for the devices to be retrofitted or newly installed on drilling rigs used in U.S. waters.

“As a rule, once industry knows what is expected, they can meet it,” Luthi said. “They just can’t meet it necessarily the next day.”

At the same time, offshore companies are adapting to new requirements mandating they adopt safety and environmental management systems and regularly audit those programs. The first round of audits can be conducted in house and are due Nov. 15. But companies will have to tap third-party auditors to examine the safety programs for the second round, due in two years.

Safety bureau director James Watson last week acknowledged that the in-house audits are trickling in only slowly.

Some industry officials say companies fear that any black marks that surface in those audits could be used against them and form the basis for violation notices and fines.

When he speaks at the Offshore Technology Conference on Thursday, Watson may face questions about the safety bureau’s plans to bolster decades-old regulations governing oil and gas production systems.

He also may encounter queries about how the agency aspires to oversee drilling in Arctic waters north of Alaska, where Shell worked on two wells last year.

ConocoPhillips cited regulatory uncertainty recently in deciding to delay its own quest for oil in the region, and executives of Norway’s Statoil have suggested they may abandon their U.S. Arctic leases altogether.

Shell has spent $5 billion in its latest Arctic quest, but many of the emergency-response plans and equipment it adopted are not strictly mandated by current policy.

That kind of uncertainty breeds high compliance costs, particularly in a frontier region, Luthi said.

“Shell is a great example of the kind of monetary investment it takes to start looking in the Arctic,” he said. “A lot of companies are going to say, ‘Boy, how much money do we spend when we’re not sure what we’re going to have to do?’ We certainly don’t want to make this up as we go along or change it as we go along.”

Whether in the temperate Gulf or the freezing Arctic, oil companies and offshore contractors crave certainty, Hopkins said.

“The capital decisions … are over multiple years’ time,” Hopkins said. “When you’re making these decisions and these investments, you want to know what the playing field and the regulations are.”